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Market Analysis 12/02/2014
Daily Commentary12.02.2014, Time of writing: 03:30 GMT
The Big Picture The dollar weakened going into Fed Chair Janet Yellen’s testimony before the House Financial Services Committee on Tuesday, based on the idea that she was likely to be more dovish than her predecessor, Ben Bernanke. In the event Yellen’s comments were almost exactly what Bernanke had been saying previously. "Let me emphasize," she said, "I expect a great deal of continuity in the [Fed's] approach to monetary policy. I served on the committee as we formulated our current policy strategy and I strongly support that strategy." In particular, she said that the Fed will continue to taper off its bond purchases unless there was a "noticeable change" in the Fed’s outlook for growth, employment or inflation. She repeated that the Fed would only reconsider policy, not change policy, when unemployment gets to 6.5% or inflation expectations get to be 0.5 percentage point over their target, and that it was necessary to consider more than just the unemployment rate when evaluating employment conditions. Her comments may indicate that both the unemployment and inflation thresholds would have to be breached before the FOMC would change rates, or perhaps what she said boils down to “we’ll raise rates when we’re ready to.”
In the end, the implied interest rate on the long-dated Fed Funds futures rose around 6 bps and 10yr bond yields rose 6 bps, indicating that Yellen was less dovish than the market had expected. But the S&P 500 was up 1.1% and the VIX index fell to 14.5 from 15.3 (it was 21.4 a little over a week ago), which shows that she was considered to be generally supportive, too. In the FX market, the safe-haven JPY and CHF were lower, as was EUR, but the dollar lost ground vs against other G10 currencies, most notably CAD. It was also lower against most of the EM currencies that we track as well despite Kazakstan’s devaluation, while EM stocks outperformed DM stocks, indicating that concerns about a general EM crisis are fading as the Fed pledges to support the economy through low rates even while reducing its bond purchases.
The calm markets may have been aided by a Republican Party plan to vote on an increase in the US government’s debt ceiling, which passed Tuesday evening without problems.
Today’s feature will be the Bank of England Quarterly Inflation Report, which is expected to include a new version of the forward guidance that BoE Gov. Mark Carney put into place with much fanfare just last August. The problem was that when they put the guidance into place, they said that they didn’t expect to hit the unemployment threshold of 7% for three years, but it’s almost there already (7.1%). They can’t drop the idea of forward guidance so quickly, yet the speed with which the threshold was met and the alacrity with which they are abandoning it means that investors may not believe the Bank’s commitment to any replacements. The market expects that they will replace the single unemployment threshold with a range of indicators of slack in the economy, such as wages, growth and inflation, to give them more “wiggle room.” That’s really not so much different from the previous system of inflation targeting. Accordingly, the market will also be looking to see what the BoE’s new inflation forecasts are, as that may now be a more reliable indicator of the likely course of monetary policy. Given that they were near to crossing their previous threshold for tightening policy, any change can only push out the time for tightening, which should in theory be GBP-negative. The only question is whether that is already discounted in the market. The market currently is discounting a change in rates sometime between 2 and 3 years from now, which suggests nobody believed their forward guidance anyway.
As for the indicators, the European Wednesday starts with France’s current account balance for December. Switzerland’s CPI (EU Harmonized) for January is expected to have fallen 0.3% mom o vs +0.2% in November. From Norway we have Q4 GDP. Both the headline and mainland figures are expected to show a slowdown. From the Eurozone as whole, industrial production is estimated to have declined 0.3% mom in December, after a 1.8% mom rise in November. This will drive the yoy rate down to +1.8% from 3.0%, which could put some downward pressure on EUR/USD. There are no major US indicators due out.
Besides BoE Governor Carney, we have three ECB speakers and one Fed speaker. ECB President Mario Draghi will deliver a keynote address at a conference, ECB’s Praet gives opening remarks at a presentation in Madrid and ECB’s Coeure speaks in Germany. St. Louis Fed President speaks on a panel discussion about "Economic and Monetary Policy Challenges Facing the US and Eurozone in 2014".
The Market EUR/USD
• EUR/USD moved lower after the new Fed Chair Yellen pledged to continue scaling back stimulus in “measured steps”. The pair is now trading near the blue downtrend line. A break below the support of 1.3618 (S1) and the 200-period moving average, may confirm the lower high and the shooting start formed on the daily chart from yesterday’s candle. The RSI exited its overbought area and moved lower, while the MACD, although in a bullish territory, crossed below its trigger line, increasing the possibilities of the aforementioned break. On the other hand, a rebound at 1.3618 (S1) may turn the attention on the 1.3700 (R1) resistance.
• Support: 1.3618 (S1), 1.3555 (S2), 1.3480 (S3).
• Resistance: 1.3700 (R1), 1.3735 (R2), 1.3810 (R3).
EUR/JPY
• EUR/JPY moved higher on Tuesday, but the advance was halted by the upper boundary of the downward sloping channel and the 200-period moving average. A clear dip below the support of 139.15 (S1) may confirm the lower high and trigger bearish extensions towards the next support at 137.55 (S2). The RSI found resistance near its 70 barrier, while the MACD, although in a positive territory, seems ready to cross below its trigger line, confirming the weakness of the longs to drive the rate higher for now. On the other hand, a break above the hurdle of 141.25 (R1) might signal that the decline from the 27th Dec. has ended. As long as the rate is printing lower highs and lower lows within the channel, the short-term downtrend remains in effect.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
GBP/USD
• GBP/USD continued moving higher, breaking the upper boundary of the downward sloping channel, but found resistance at the 1.6465 (R1) barrier. I remain neutral on cable for now since the possibility for a lower high near that resistance still exists. A clear upward violation of the aforementioned hurdle may be a first signal that the recent decline has bottomed. However, the pair’s forthcoming direction will depend largely on today’s Quarterly Inflation Report and the changes it makes in the Bank’s forward guidance.
• Support: 1.6335 (S1), 1.6260 (S2), 1.6135 (S3).
• Resistance: 1.6465 (R1), 1.6640 (R2), 1.6735 (R3).
Gold
• Gold moved slightly higher, but after hitting the resistance barrier of 1290 (R1) returned near the levels we left it. The outlook for the precious metal remains positive and a violation of the 1290 (R1) resistance may target the next barrier at 1315. However, since the RSI exited its overbought conditions and the MACD seems to be topping, I would expect the continuation of the pullback, maybe to test the 1270 (S1) barrier, as a support this time.
• Support: 1270 (S1), 1250 (S2), 1235 (S3).
• Resistance: 1290 (R1), 1315 (R2), 1340 (R3).
Oil
• WTI continued stubbornly hitting the resistance of 100.55 (R1). The short-term outlook remains positive and a break of that barrier may target the next one at 102.00 (R2), first. A clear violation of the 100.55 (R1) hurdle may signal the completion of a double bottom formation on the daily chart and have larger bullish implications. The MACD, although in a bullish territory, seems ready to cross below its trigger line, while the RSI is still finding resistance near its 70 level, thus further consolidation or a pullback cannot be ruled out.
• Support: 98.80 (S1), 96.50 (S2), 95.00 (S3).
• Resistance: 100.55 (R1), 102.00 (R2), 103.80 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
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Market Analysis 13/02/2014
Daily Commentary13.02.2014, Time of writing: 03:30 GMT
The Big Picture Back to normal at the BoE: Bank of England Gov. Mark Carney yesterday ended his six-month experiment with forward guidance, during which he promised not to raise rates as long as unemployment remained above 7%, and returned to a more normal style of policy-making. Rather than making specific promises about what would trigger a re-evaluation of policy, he tried to guide the markets as to how the Bank will eventually unwind its ultra-easy monetary policy. This detailed explanation of the Bank’s “reaction function” – discussing which factors the Monetary Policy Committee (MPC) will look at as it evaluates the economy and what it hopes to accomplish with its policy tools – is essentially a return to focusing on all the variables that influence inflation, which is what monetary policy used to be. It’s “forward guidance” of a sort, that is, explaining what the MPC hopes to see in the future while bearing in mind that its forecasts often don’t come true. So there was a lot of mention of the need for a “gradual” tightening when the time comes and that “appropriate” interest rates will be “materially lower than before the crisis.” But as for a trigger – we now have the Bank’s forecast for 18 different variables. That’s a far cry from the focus on unemployment that existed before. It is in fact more of a return to the kind of policy-making that existed previously, but with the MPC being much clearer about how it would make its decisions and what kind of an “end game” it envisioned for its policy. The market took his statements as suggesting higher interest rates sooner than before and pushed sterling and sterling interest rates up sharply, but Mr. Carney seemed to push back against this conclusion in interviews afterwards, stressing that there was a lot of spare capacity in the system that would preclude any tightening for some time. I believe there could be some profit-taking on sterling after yesterday’s big rise (it’s up about 1% vs both USD and EUR). Longer term, this new system basically means a return to watching all the data every month, not just unemployment, and therefore makes it likely that sterling will become more volatile – and stronger, in my view.
The other big event yesterday was a comment by ECB Executive Board member Benoit Coeure, who said that the ECB is “very seriously” considering negative deposit rates. He will speak again today and the market will be waiting to see if he repeats or amplifies that statement. While that comment was the one that got the most attention, he also made some upbeat comments about the Eurozone economy was recovering in 2013 and how “survey indicators point to a further recovery in 2014.” If he focuses on the upbeat today and fails to elaborate on negative rates, EUR/USD could rebound somewhat. Also the ECB publishes its monthly report and the market will be looking to see what private sector inflation forecasts are to determine whether inflation expectations are still well anchored. Germany’s final CPI for January is coming out as well.
In the US on the other hand Fed chair Janet Yellen’s testimony was postponed indefinitely because of snow. Given that this week’s heavy snowfall coincides with the survey week for the employment data, we are going to have another round of distorted figures this month that will leave the market (and the Fed) wondering about what the underlying trends are.
Overnight the AUD fell precipitously after the unemployment rate rose faster than expected in January, back to the levels that prevailed during the depths of the financial crisis in 2009. As you can see from the graph, the trend in Australian unemployment is definitely up – unemployment hasn’t been this high there since 2003 – and the Reserve Bank of Australia must be sensitive to this problem. I still believe the new-found enthusiasm for AUD is too sudden a change in view and I remain bearish on the currency.
Today the Riksbank takes its turn on its rate decision. The market expects the Bank to keep its benchmark rate and its rate path* unchanged. As a result the focus will be on the press conference held by the Governor Stefan Ingves and the Bank’s forecasts on inflation and growth. Sweden’s unemployment rate is is expected to have risen to 8.3% in January from 7.5% in December.
In the US, retail sales are forecast to be unchanged vs +0.2% mom in December, while the excluding autos and gasoline figure is expected to have slowed to +0.1% mom from +0.6% mom the previous month. That could depress the dollar. Initial jobless claims for the week ended on Feb 8 are forecast at 330k vs 331k. That would leave the four-week moving average little changed at 335k vs 334k the previous week and probably wouldn’t affect the markets. In Canada, the new housing price index is estimated to have been up 0.1% in December from an unchanged figure in November. Norges Bank Gov. Olsen will deliver his annual address to the Supervisory Council.
The Market EUR/USD
• EUR/USD moved lower and broke below the 1.3618 barrier, confirming the lower high and the shooting star formed on the daily chart by Tuesday’s candle. Despite the false break of the trend line originated from 27th of December (drawn in previous comments), the pair seems to respect the downward sloping channel drawn from the highs of 30th Dec. The fall was halted by the 1.3560 (S1) support and during the Asian morning the rate recovered somewhat and is currently testing once again the 1.3618 (R1) level, as a resistance this time. The structure of lower highs and lower lows is still in place and since the price is trading within the channel, the path remains to the downside. Only a break above 1.3700 (R2) may be a first indication that the direction has changed and the test at 1.3560 (S1) was a higher low.
• Support: 1.3560 (S1), 1.3480 (S2), 1.3400 (S3).
• Resistance: 1.3618 (R1), 1.3700 (R2), 1.3735(R3).
USD/JPY
• USD/JPY moved lower and is once again struggling near the support level of 102.00 (S1). A clear dip below that support may challenge once more the support at 101.00 (S2) which coincides with the 50% retracement level of the 8th Oct. - 2nd Jan. advance. On the other hand, an upward break of the 103.00 (R1) resistance may argue that the short-term downtrend has bottomed and that it was just a correcting phase of the longer-term upward path. The RSI is pointing down, while the MACD crossed below its trigger line, confirming the weakness of the longs to drive the battle higher, at the moment.
• Support: 102.00 (S1), 101.00 (S2), 100.00 (S3)
• Resistance: 103.00 (R1), 103.90 (R2), 105.00 (R3).
EUR/GBP
• EUR/GBP collapsed after BoE Governor Carney said that “recovery is gaining momentum”. The rate violated the 0.8240 barrier and reached the 0.8187 (S1) support level. In yesterday’s midday comment I said that I would ignore the oversold reading of RSI since the rate may continue to the downside without retracing. Now that the fall met our support barrier is time to look the oscillator again. The indicator is likely to bottom since it seems to turning its slope and a break above its 30 barrier may confirm an upward corrective wave before the bears prevail again. A clear break below the 0.8187 (S1) support may have larger bearish implications and target the area of 0.8080 (S2).
• Support: 0.8187 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8240 (R1), 0.8390 (R2), 0.8335 (R3).
Gold
• Gold continued consolidating near the barrier of 1290 (R1). This increases the possibilities for a pullback, maybe to test the 1270 (S1) area as a support this time. More indications of weakness are provided by our momentum studies. The RSI exited its overbought zone and is pointing down, while the MACD, although in a bullish territory, seems ready to cross below its signal line. However, since the precious metal is printing higher highs and higher lows, the overall short-term path remains to the upside.
• Support: 1270 (S1), 1250 (S2), 1235 (S3).
• Resistance: 1290 (R1), 1315 (R2), 1340 (R3).
Oil
• WTI failed to sustain above the 100.55 (R1) barrier and after touching 101.35 (R2) moved lower. Since the price is trading above both the moving averages and the blue uptrend line, I consider the decline to be a corrective wave, maybe to test the area near the 98.80 support, which coincides with the 61.8% retracement level of last Friday’s rally. A clear close below the aforementioned support and the blue trend line may be a first reason to reconsider our analysis. On the daily chart, we can identify a shooting star candle, favoring the continuation of the pullback.
• Support: 98.80 (S1), 96.50 (S2), 95.00 (S3).
• Resistance: 100.55 (R1), 101.35 (R2), 102.00 (R3).
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MARKETS SUMMARY
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Market Analysis 14/02/2014
Daily Commentary 14.02.2014, Time of writing: 03:30 GMT
The Big Picture Dollar declines as Yellen surprise unwinds The dollar was lower against almost all currencies Friday morning, including most of the EM currencies that we track. Among the G10, the only currency to decline vs USD was SEK, which was still lower after yesterday’s surprising jump in unemployment. The dollar was hit by a combination of weaker-than-expected retail sales for January and higher-than-expected initial jobless claims. The recent string of worse-than-expected indicators from the US are calling into question the recovery scenario there. The implied interest rates on Fed Funds futures, which had gained 6 bps after Fed Chair Yellen’s recent testimony, slipped 3 bps yesterday as doubts about the economy crept in. Ten-year bond yields also slipped 3 bps and are now back below levels prevailing before Yellen talked. This is notable as she was expected to be considerably more dovish than she actually was and the market was at that time discounting a change in tone at the Fed. With the loss of support from higher interest rates, it would be natural for the dollar to weaken.
Against that background, the recovery in EM currencies was notable. Out of the 15 that we track, only the RUB and HUF were lower compared with Thursday’s opening levels. The battered IDR and BRL, two of the “fragile five,” gained over 1%. The real was up after central bank President Tombini said the country may use its reserves to bolster the currency, while IDR was up after it announced yesterday that the current account deficit had narrowed to 2% of GDP in Q4 from 3.8% in Q3. Regardless of the reasons for individual currencies to gain, one might think that a slowdown in the world’s largest economy would not be good for these countries’ trade and hence not good for their currencies, either. That makes yesterday’s gains all the more notable. It may be that confidence is coming back to EM and the risk of contagion is diminishing.
Today is GDP day in Europe. We have the preliminary GDP for Q4 from France, Germany, Italy and Eurozone as a whole. French GDP rose at a stronger-than-expected 0.3% qoq vs expectations of +0.2% qoq, which in any case was a turnaround from -0.1% qoq in Q3.
Germany’s growth also exceeded expectations at +0.4% qoq (expected: +0.3% qoq, unchanged from Q3 pace of growth). Italy’s GDP to rise 0.1% qoq, vs 0.0% qoq. The GDP for Eurozone as a whole is expected to have accelerated to +0.2% qoq from +0.1% qoq in Q3.
On the other hand, US industrial production for January is estimated to have slowed to +0.2% mom from +0.3% mom in December and the preliminary University of Michigan consumer sentiment index for February is forecast at 80.2, down from 81.2 in January.
Positive growth data from Eurozone, confirming that the recovery continued at the end of last year, and more disappointing US indicators may encourage the EUR/USD bulls to overcome the 1.3700/35 resistance area.
As for speakers, ECB’s Weidmann speaks on “Stable Money in Europe” and Bank of Portugal Governor and European Central Bank Governing Council Member Carlos Costa speaks to a parliamentary commission.
The Market EUR/USD
• EUR/USD continued moving higher and is now trading slightly above the upper boundary of the blue downward sloping channel and below the hurdle at 1.3700 (R1). Positive Eurozone growth data today may encourage the longs to overcome the resistance area of 1.3700/35, which may open the way for another test of the 1.3810 (R3) barrier. On the other hand, a close below the 1.3560 (S2) is needed to confirm the continuation of the downward path. I remain neutral on the pair until we have a clearer picture on which path the price might choose.
• Support: 1.3650 (S1), 1.3560 (S2), 1.3480 (S3).
• Resistance: 1.3700 (R1), 1.3735 (R2), 1.3810 (R3).
EUR/JPY
• EUR/JPY tried to escape from the downward sloping channel but after hitting the 200-period moving average moved lower to find support at the 139.15 (S1) barrier and the 50-period moving average. A clear dip below that level may trigger bearish extensions towards the next support at 137.55 (S2). The MACD, already in a bullish territory, lies below its trigger line and the RSI follows a downward path, confirming the inability of the longs to drive the price action higher.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
GBP/USD
• GBP/USD is currently testing the highs at 1.6665 (R1). An upward violation of that barrier may open the way towards the next resistance at 1.6740 (R2) and signal the continuation of the longer-term uptrend. However, since the RSI seems to be topping, I would expect a price downward corrective wave upon the oscillator’s exit from the extreme zone. The MACD shows signs of topping as well and seems ready to cross below its trigger line.
• Support: 1.6625 (S1), 1.6520 (S2), 1.6465 (S3).
• Resistance: 1.6665 (R1), 1.6740 (R2), 1.6860 (R3).
Gold
• Gold managed to move higher after consolidating near the barrier of 1290 (S1). The precious metal is now heading towards the resistance of 1315 (R1), where a clear upward violation may open the way for the next one at 1340 (R2). The RSI remains near its extreme levels and thus some consolidation or a pullback during the development of further advance, cannot be ruled out. Since the precious metal is printing higher highs and higher lows, the overall short-term path remains to the upside.
• Support: 1290 (S1), 1270 (S2), 1250 (S3).
• Resistance: 1315 (R1), 1340 (R2), 1360 (R3).
Oil
• WTI found resistance once again at the 100.55 (R1) barrier and moved slightly lower. Since the price is trading above both the moving averages and the blue uptrend line, I consider the decline to be a corrective wave, maybe to test the area near the 98.80 support, which coincides with the 61.8% retracement level of last Friday’s rally. A clear close below the aforementioned support and the blue trend line may be a first reason to reconsider our analysis. On the daily chart, after Wednesday’s shooting star, yesterday’s candle looks like a hanging man, increasing the possibilities for the continuation of the corrective wave.
• Support: 98.80 (S1), 96.50 (S2), 95.00 (S3).
• Resistance: 100.55 (R1), 101.35 (R2), 102.00 (R3).
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MARKETS SUMMARY
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Market Analysis 17/02/2014
Daily Commentary17.02.2014, Time of writing: 03:30 GMT
The Big Picture The dollar’s miserable week The dollar had a miserable week last week. It fell against all its G10 counterparts and most EM currencies as well. GBP was the biggest winner, gaining after the Bank of England revamped its forward guidance. It’s notable that a new Fed Chair explaining her approach didn’t have the same effect on the dollar even though she proved less dovish than expected. US 10-year bond yields are now some 7 bps higher than they were at the close on Monday, before Ms. Yellen’s presentation last Tuesday, and the implied rates on Fed Funds futures are 6 to 8 bps higher, yet the dollar is lower across the board. That may be because although rates have come back from their lows, they are still fairly low – the 2016 Fed Funds futures for example are still between 24 and 34 bps below their 9 January peak. EUR/USD then was around 1.3600, vs this morning’s level of 1.3711; USD/JPY at 104.90 (vs 101.61) and GBP/USD at 1.6465 (vs 1.6790). We can’t expect a sustained USD rally until US rate expectations start to rise again, and we can’t expect that to happen until the data start to improve – perhaps after the winter storms end?
Taking into account the loss of some interest rate support, the weakness in USD is no surprise; what is notable, if anything, is the weakness in EUR, which has underperformed JPY and GBP during this time. That’s probably because of the divergence in monetary policy. The debate in Europe is not at all when the ECB can start normalizing rates; rather, it’s whether the ECB will have to loosen further. In that respect, the stability of EUR/USD and the narrow trading range is notable. One month historical volatility in EUR/USD has fallen to 6.5%, compared with an average of 9.7% since the beginning of 2010. It was only lower at the end of December, when the one-month tenor included the Christmas period. Investors looking for rising volatility should look at AUD/NZD and EUR/NOK; out of 15 G10 currency pairs that we track, those are the only two with higher-than-average volatility. That doesn’t necessarily mean they have the highest volatility, though; that honor goes to AUD/USD, NZD/USD, and EUR/JPY.
What’s even more worth noting is the recovery of most of the EM currencies. Several EM currencies were up 1% or more last week (ZAR over 2%, IDR nearly 4%). This is probably due to three factors: weaker US data, which has prompted a change in expectations about USD strength; the moderate stance that Fed Chair Yellen took during her testimony before Congress, which has calmed any fears about an early tightening of rates; and stronger economic data from China, particularly its unexpectedly good export performance. However, I doubt if these factors can sustain a rally for long. In particular, while the beginning of the Fed’s tapering was the catalyst for the EM currencies’ decline, the underlying reason is the domestic weakness and imbalances of many of the EM countries. This will not be solved by what happens in the US or even China. That may be why RUB suffered the biggest declines over the week: the government’s lack of interest in reform makes it a natural short.
During the Asian morning, Japan announced a disappointing preliminary GDP for Q4. GDP rose +0.3% qoq, the same as in Q3 but less than half the consensus forecast of +0.7% qoq. Tokyo stocks were up nonetheless and USD/JPY was a bit lower. The calm response to the data – showing activity far below estimates ahead of the hike in the consumption tax in April – may be because business investment and consumer spending were relatively healthy in the report, but net imports dragged down the overall result. Elsewhere, the UK Rightmove house price index showed a 3.3% mom increase in February, up from 1.0% in January. That’s likely to support GBP today.
We have only one release and one speaker during the European day; Italy’s current account balance is due out with no forecast available. ECB’s governing council member Ewald Nowotny delivers a lecture in London.
The rest of the week is much busier. The highlights are a Bank of Japan policy board meeting on Tuesday and PMI day on Thursday.
The Market EUR/USD
• EUR/USD managed to overcome the 1.3700 hurdle and during the early European morning is finding resistance at the upper boundary of the purple upward sloping channel, below the 1.3735 (R1) resistance. A clear upward violation of that barrier may open the way towards the next hurdle at 1.3810 (R2). However, the RSI exited its overbought territory, indicating a loss of momentum, thus some consolidation or maybe a pullback is possible before the bulls take control again. On the downside, a dip below the lower boundary of the upward purple channel and the support at 1.3650 (S2) will give a neutral outlook, while a penetration below the previous low at 1.3560 (S3) may turn the short-term picture negative again.
• Support: 1.3700 (S1), 1.3650(S2), 1.3560 (S3).
• Resistance: 1.3735 (R1), 1.3810 (R2), 1.3893 (R3).
USD/JPY
• USD/JPY fell below the 102.00 barrier on Friday. I would expect the bears to continue pushing the price lower and challenge once again the support level at 101.00 (S1), which coincides with the 50% retracement level of the 8th Oct. - 2nd Jan. advance. The MACD oscillator lies below both its zero and trigger lines, confirming the recent negative momentum of the price action. Only an upward break above the 103.00 (R1) may argue that the short-term downtrend has bottomed.
• Support: 101.00 (S1), 100.00 (S2), 99.00 (S3)
• Resistance: 102.00 (R1), 103.00 (R2), 103.90 (R3).
EUR/GBP
• EUR/GBP managed to fall below the 0.8187 barrier on Friday. I would expect the decline to continue and target the next support at 0.8080 (S1). The RSI is back within its oversold zone, thus another upward corrective wave upon the oscillator’s exit from the extreme territory is likely. The outlook of the pair remains negative since the rate is trading below both the moving averages. On the daily chart, the longer-term downtrend, marked by the light blue trend line, is still intact.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8187 (R1), 0.8225 (R2), 0.8265 (R3).
Gold
• Gold continued climbing, reaching and breaking above the 1315 obstacle. If the bulls maintain their strong momentum I would expect them to challenge the resistance level at 1340 (R1), where an upward violation may open the way for the next one at 1360 (R2). The RSI remains within its overbought zone and thus some consolidation or a pullback during the development of further advance, cannot be ruled out. Since the precious metal is printing higher highs and higher lows, the overall short-term path remains to the upside. The only grey spot in gold’s picture is that on the daily chart, the precious metal is testing the 200-day moving average.
• Support: 1315 (S1), 1290 (S2), 1270 (S3).
• Resistance: 1340 (R1), 1360 (R2), 1376 (R3).
Oil
• WTI moved higher and is currently testing again the 100.55 (R1) resistance barrier. An upward violation of that barrier followed by a clear break of the 101.35 (R2) resistance may signal the completion of a double bottom on the daily chart and have larger bullish implications. On the downside, only a clear close below the blue uptrend line and the 98.80 (S1) support would be a reason to reconsider our analysis.
• Support: 98.80 (S1), 96.50 (S2), 95.00 (S3).
• Resistance: 100.55 (R1), 101.35 (R2), 102.00 (R3).
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MARKETS SUMMARY
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Market Analysis 18/02/2014
Daily Commentary18.02.2014, Time of writing: 03:30 GMT
The Big Picture Dollar recovers as BoJ gets worried After its miserable performance last week, the dollar turned around and gained modestly against several currencies overnight. Its biggest gains were against the yen, after the Bank of Japan surprised the market by doubling one lending facility to JPY 7tn and said individual banks could borrow twice as much low-interest money as previously under a second facility. While the efficacy of the move is questionable – companies already have record amounts of cash and deposits, so funding constraints are not necessarily a constraint on investment – nonetheless the move is a sign that the BoJ is concerned about Japan’s weak growth after the disappointing Q4 GDP data and is committed to supporting the economy as much as possible. That increases the likelihood that it will decide to accelerate its expansion of the monetary base after the consumption tax hike in April, which would be JPY-negative. Indeed, a recent Bloomberg survey shows 25 out of 34 economists forecast such a move will take place by the end of September, with 13 of those forecasting a move by end-June. I also expect that they will and that the move will further boost USD/JPY (that is, weaken the yen).
AUD/USD was little changed after the release of the minutes of the latest Reserve Bank of Australia meeting. The minutes said the members “commenced their discussion of the domestic economy by focusing on the higher-than-expected reading for consumer price inflation in the December quarter,” which is not a good sign if you’re looking for further easing. About the AUD, they noted that it had depreciated further since the December meeting and said “if sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy.” This was in contrast to the statement in December, when they said that “members agreed that (the exchange rate) remained uncomfortably high and a lower level would likely be needed to achieve balanced growth in the economy.” In other words, the RBA felt at the December meeting (when AUD/USD was at 0.9122 the AUD TWI was at 69.7) that further depreciation was necessary, but by the time of the February meeting (when AUD/USD was at 0.8937 and the AUD TWI was at 68.6) that sufficient depreciation had been achieved. Personally I don’t think the decline in AUD since December has been that significant and I think the country’s terms of trade are still deteriorating. When I read reports about iron ore stockpiles in China reaching record highs, I can’t be optimistic about the AUD.
The main event on the European agenda today is the German Zew survey for February. The current situation index is expected to rise to 44.0 from 41.2 in January, while the expectations index is forecast to fall slightly to 61.5 from 61.7. Last month, the expectations index came out first and was below expectations, sending EUR/USD lower, but a few minutes later, the current situation index came better than expected and EUR/USD recovered the lost ground. The Eurozone current account balance for December is also coming out, but no estimate is available. Sweden’s CPI for January is expected to remain at +0.1% yoy.
From UK, the nation’s CPI is expected to have fallen 0.5% mom in January vs a +0.4% rise in December. However, this will keep the headline yoy rate unchanged at +2.0% and drive the core yoy rate higher at +1.9% from +1.7% previously. The UK PPI for the same month is expected to have seen no change for a second consecutive month. Figures like these are not likely to have a material impact on GBP.
In US, the Fed will hold an open meeting to discuss banking supervision. As for the indicators, the Empire state manufacturing survey for February is expected to fall slightly to 9.00 from 12.51 in January, but as the January reading was a sharp and unexpected rise from 0.98 in December, I wouldn’t expect a modest decline to have a negative impact on USD. The National association of Home Builders (NAHB) housing market index for February is estimated to stay at 56. We also get the revisions of the US CPI. Each year ahead of the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the completed calendar year.
Besides Governor Kuroda, we have three ECB speakers on Tuesday’s schedule: ECB Chief Economist Peter Praet and Governing Council members Erkki Liikanen and Luis Maria Linde.
The Market EUR/USD
• EUR/USD continued consolidating within the resistance area between the support of 1.3700 (S1) and the resistance at 1.3735 (R1). A clear upward violation of the 1.3735 (R1) hurdle may open the way towards the next one at 1.3810 (R2). Considering negative divergence between the MACD and the price action, further consolidation or a pullback, towards the lower boundary of the upward sloping channel cannot be ruled out. On the downside, a dip below the lower boundary of the upward purple channel and the support at 1.3650 (S2) will give a neutral outlook, while a penetration below the previous low at 1.3560 (S3) may turn the short-term picture negative again.
• Support: 1.3700 (S1), 1.3650 (S2), 1.3560 (S3).
• Resistance: 1.3735 (R1), 1.3810 (R2), 1.3893 (R3).
EUR/JPY
• EUR/JPY violated the neckline of a possible “inverted head and shoulders” formation and is currently heading towards the 141.25 (R1) resistance level. A violation of that hurdle may confirmed the reversal formation and trigger further extensions towards the 144.35 (R3) barrier which coincides with the 161.8% Fibonacci extension level of the 29th Jan.- 4th Feb. bearish wave. On the downside, a break below the 139.15 (S1) may signal that the formation was not as valid as we thought and turn the picture negative again.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3)
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
GBP/USD
• GBP/USD moved lower on Monday after finding resistance at 1.6820 (R1). The decline was halted by the support at 1.6695 (S1), near the 23.6% Fibonacci retracement level of last week’s rally. If the bulls are strong enough to regain momentum and overcome the resistance at 1.6820 (R1), I would expect them to target the next one at 1.6885 (R2). The MACD although in a bullish territory, lies below its trigger line, thus it’s possible that the puillback may continue. On the daily chart, the longer term uptrend has resumed after the break of the 1.6630 obstacle.
• Support: 1.6695 (S1), 1.6630 (S2), 1.6520 (S3).
• Resistance: 1.6820 (R1), 1.6885 (R2), 1.7000 (R3).
Gold
• Gold moved lower after hitting 1332 (R1). The outlook of the precious metal remains positive and a break above that resistance may drive the action higher, towards the next resistance at 1360 (R2). However the RSI seems ready to cross below 70, while the MACD, although in bullish territory, seems ready to cross below its trigger line, so it seems more likely to me that the downward corrective wave continues. The only grey spot in gold’s picture is that on the daily chart, the precious metal is still testing the 200-day moving average.
• Support: 1315 (S1), 1290 (S2), 1270 (S3).
• Resistance: 1332 (R1), 1360 (R2), 1376 (R3).
Oil
• WTI moved above the 100.55 barrier and is currently trading between that support and the resistance of 101.35 (R1). A clear close above that resistance may signal the completion of a “double bottom” formation on the daily chart and have larger bullish implications. On the downside only a break below the blue uptrend line and the 98.80 (S2) support would be a reason to reconsider our analysis.
• Support: 100.55 (S1), 98.80 (S2), 96.50 (S3).
• Resistance: 101.35 (R1), 102.00 (R2), 103.15 (R3).
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Market Analysis 19/02/2014
Daily Commentary19.02.2014, Time of writing: 03:30 GMT
The Big Picture US statistics keep missing estimate The dollar was generally weaker Wednesday after yet another in a long string of disappointing US data. The Empire State manufacturing survey for February came out at 4.48, missing market estimates of 8.50 (previous = 12.51). The release was enough for EUR/USD to break above the resistance of 1.3735 and continue higher. Also there was a surprisingly large net outflow of nearly $120bn from US assets in December, according to the Treasury International Capital (TIC) data released yesterday. Although the S&P 500 hitting a fresh record high during the month, many investors sold bonds as Treasury yields moved up from 2.8% to break the 3.0% barrier by the end of the month – including a $48bn sale by China, its second-largest sale ever, despite the fact that their FX reserves rose by $32bn that month. (The buyer was…Belgium! In other words, Euroclear.) On the other hand, just looking at the price action it doesn’t seem that we’ve had the reverse of these trade, that is, people getting into USD as yields moved back down to 2.7%. Perhaps there is scepticism about whether rates will remain at current levels. Looking at 2013 as a whole, there were net outflows of USD 214bn from US stocks, while there were net inflow of $111bn into Eurozone stocks. This was one factor that kept the euro well supported last year. I don’t think this can be such a big factor again this year, as European stocks have repriced considerably while the outlook for the Eurozone economy is not all that improved. However until investors feel comfortable buying US bonds again we are unlikely to see the kinds of large-scale capital flows into the US that would push the dollar significantly higher.
On the other hand, AUD and NZD both lost against the dollar overnight. The weakness in Asian stocks and the fact that the People’s Bank of China (PBoC) drained funds from the money market hurt the antipodean currencies. AUD wasn’t either helped by news that Alcoa Inc. is shutting an aluminium smelter and two mills in Australia, yet another sign of the gradual demise of Australian industry. The Australian Conference Board leading index for December was higher than expected, but the Westpac leading index for January unexpectedly fell, so the data was mixed. Although the market has made much of the fact that the Reserve Bank of Australia dropped the line about the currency being overvalued from the minutes of its last meeting, it wasn’t so long ago that officials were talking about 85 cents or lower for an appropriate value for the currency. I don’t think things have changed that much and I remain bearish on the currency.
Today the Bank of England publishes its latest meeting minutes and the UK unemployment rate is expect to remain at 7.1% in January. I don’t think that the market will put the same weight on the employment data as it did previously, after the BoE reformulated its forward guidance last week.
In the US, the Federal Reserve releases the minutes of its Jan. 28-29 meeting, the last meeting under Chairman Bernanke. The market will be interested in the discussion around the decision to continue with tapering down the monthly bond purchases. Housing starts for January are forecast to slow to 950k from 999k in December and the building permits for the same month are expected to fall to 975k from 991k previously. Such a sluggish housing market would normally be bad news for the dollar, but given the bad weather conditions across the country the market is likely to ignore it.
Three Fed speakers are scheduled on Wednesday: Atlanta Fed President Dennis Lockhart, St. Louis Fed President James Bullard, and San Francisco Fed President John Williams
The Market EUR/USD
• EUR/USD moved higher on Tuesday, breaking above the hurdle of 1.3735. In my view, the advance may continue and challenge the key resistance at 1.3810 (R1). However, since the RSI lies within its overbought territory and is pointing down, ready to cross below 70, a pullback during the development of further advance cannot be ruled out.
As long as the pair is printing higher highs and higher lows and is trading above both the moving averages, the short term outlook remains positive.
• Support: 1.3735 (S1), 1.3700 (S2), 1.3650 (S3).
• Resistance: 1.3810 (R1), 1.3893 (R2), 1.4000 (R3).
USD/JPY
• USD/JPY moved lower after hitting once again the 102.70 (R1) resistance barrier. The pair seems to be forming an ascending triangle formation. Most of the time an ascending triangle has bullish implications and a break above the formation’s upper boundary, which coincides with the 200-period moving average, may signal that the short-term decline has bottomed and it was only a retracement of the longer-term uptrend.
• Support: 101.40 (S1), 100.80 (S2), 100.00 (S3)
• Resistance: 102.70 (R1), 103.45 (R2), 104.85 (R3).
EUR/GBP
• EUR/GBP failed to overcome the low of 0.8167 (S1) and after rebounding near that barrier, moved higher and violated the 0.8225 (S1) hurdle. The longer-term downtrend is still intact, but the aforementioned move shows that the bears are running out of strength. This is also confirmed by the positive divergence between the RSI and the price action. A clear violation of the 0.8265 (R1) resistance may challenge the validity of the longer term downtrend line.
• Support: 0.8225 (S1), 0.8167 (S2), 0.8080 (S3).
• Resistance: 0.8265 (R1), 0.8335 (R2), 0.8390 (R3).
Gold
• Gold continued moving lower and reached the support of 1315 (S1). I would expect the metal to fall below that barrier and extend the corrective wave, maybe towards the next support barrier at 1290 (S2). Both momentum studies favor such a wave, since the RSI crossed below its 70 barrier and is pointing down, while the MACD crossed below both its blue support line and its signal line. The overall short-term picture of the yellow metal remains to the upside, since the price is trading above both the moving averages and the key barrier of 1270 (S3)
• Support: 1315 (S1), 1290 (S2), 1270 (S3).
• Resistance: 1332 (R1), 1360 (R2), 1376 (R3).
Oil
• WTI managed to overcome the 100.35 hurdle yesterday and reached the resistance at 103.15 (R1). On the daily chart we have the completion of a possible double bottom formation, thus I would expect the aforementioned break to have larger bullish implications. Nonetheless, I would expect some profit-taking during the day after the dynamic advance. A pullback is also favored by RSI, which seems ready to cross below 70, confirming the pause in the momentum. The picture of WTI remains positive as it is forming higher highs and higher lows above both the moving averages and the blue uptrend line.
• Support: 101.35 (S1), 100.55 (S2), 98.80 (S3).
• Resistance: 103.15 (R1), 104.35 (R2), 108.15 (R3).
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Market Analysis 20/02/2014
Daily Commentary 20.02.2014, Time of writing: 03:30 GMT
The Big Picture China troubles mean further AUD depreciation The dollar brushed off lower-than-expected housing numbers Wednesday as yet another weather-related disappointment and gained against most currencies, both G10 and EM. First the minutes of the recent FOMC meeting showed that the Committee is firmly committed to tapering down its bond-buying program; the debate concerns the appropriate pace of tightening interest rates at some point in the future. Against that background, 10yr US Treasury yields edged up around 3 bps Wednesday as did the implied interest rates on long-dated Fed Funds futures, which supported the dollar. Then during the Asian day the China HSBC/Markit flash manufacturing purchasing managers’ index (PMI) for February fell well below estimates and further into contractionary territory for the second month in a row. With more trouble brewing in the trust sector, market fears about a “hard landing” in China are increasing.
The China data hit AUD and NZD significantly, as might be expected. AUD was down a bit more than NZD and I would expect to see that pattern continue. Australia’s exports to China are concentrated in industrial materials, which are more sensitive to a fall in manufacturing demand than New Zealand’s food exports. I remain bearish on AUD in general and particularly AUD/NZD as I think the changes going on in China are quite deep and will not be resolved just by the PBoC coming to the rescue with a liquidity injection. On the other hand, the China data turned USD/JPY around and the yen wound up as the only currency to show a noticeable gain vs USD as the Tokyo stock market fell.
This despite a record trade deficit in January (NSA basis) with an unhealthy pattern: exports less than expected (albeit up yoy) and imports more than expected. The pattern here would suggest that selling AUD/JPY would be a good way to benefit from the opposite impact that news of a China slowdown has on those two currencies.
The biggest loser overnight was CAD, which collapsed after Canadian wholesale sales data fell more than expected. There may also be some CAD selling related to a large M&A transaction. Market participants have trimmed their short CAD positions somewhat, according to the Commitment of Traders report, from a recent maximum of -70,300 contracts to -58,900. Although that’s still historically a large short position for this contract, it does suggest that investors have some room to get back into the trade now.
More February’s PMIs are due out during the European day. We have the preliminary figures for both the manufacturing and service sectors from France, Germany and Eurozone as a whole. Both France’s preliminary PMIs are expected to rise, while in Germany the manufacturing PMI is estimated to be slightly lower and the service-sector PMI to rise. Eurozone’s preliminary manufacturing PMI for February is expected to be unchanged and the preliminary service-sector and composite figures to be higher than in January. All told the figures may be modestly EUR-positive, but without a rise in Germany’s PMI it will be hard for the market to get too enthusiastic.
From Eurozone, we also get the preliminary consumer confidence for February, which is forecast at -11.0 from -11.7 the previous month. French CPI is expected to have fallen 0.5% mom in January from +04% mom in December. However, this will bring the yoy rate up to +0.9% from +0.8%.
In US, the CPI for January is estimated to slow to +0.1% mom from a revised +0.2% mom in December, although this will drive the yoy rate up to +1.6% from +1.5%. The initial jobless claims for the week ended on Feb 15 are expected at 335k from 339k previously. The Philadelphia Fed business activity index for February is forecast to fall to 8.0 from 9.4, while the Conference Board US leading index is forecast to have been up +0.4% in January from +0.1% in December.
Two speakers are scheduled on Thursday. ECB Vice President Vitor Constancio speaks at the European Financial Services Conference and Norges Bank Governor Oeystein Olsen gives a speech at the University of Oslo.
The Market EUR/USD
• EUR/USD pulled back on Wednesday, but after hitting the 1.3735 support, moved slightly higher. I still expect the advance to continue and challenge the key resistance at 1.3810 (R1). The structure of higher highs and higher lows remains in progress, while the rate is trading above both the moving averages, completing the positive short-term outlook for the currency pair. My only concern is that the pair remains near the upper boundary of the upward sloping channel, where it might find resistance and retrace once again before reaching the 1.3810 (R1) barrier.
• Support: 1.3735 (S1), 1.3700 (S2), 1.3650 (S3).
• Resistance: 1.3810 (R1), 1.3893 (R2), 1.4000 (R3).
EUR/JPY
• EUR/JPY moved lower and at the time of writing is approaching the support zone where four indicators meet: the lower boundary of the upward channel, the neckline of the possible “inverted head and shoulders”, the 50-period moving average and the 200-period moving average. A rebound near that zone, followed by the violation of the 141.25 (R1) resistance, may confirmed the reversal formation and trigger further extensions towards the 144.35 (R3) barrier which coincides with the 161.8% Fibonacci extension level of the 29th Jan.- 4th Feb. bearish wave. On the downside, a break below the 139.15 (S1) may signal that the formation was not as valid as we thought and turn the picture negative again.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3)
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
GBP/USD
• GBP/USD consolidates between the support of 1.6630 (S1) and the resistance at 1.6725 (R1). In my view, the intraday bias remains neutral since a break below the 1.6630 (S1) may extend the retracement, while a violation of the 1.6725 (R1) may challenge once again the highs of 1.6820 (R2). On the daily chart, the longer term uptrend has resumed after overcoming January’s highs.
• Support: 1.6630(S1), 1.6520 (S2), 1.6465 (S3).
• Resistance: 1.6725 (R1), 1.6820 (R2), 1.6885 (R3).
Gold
• Gold fell below the 1315 barrier, enhancing my view that we are experiencing a correcting phase. I expect the metal to extend the corrective wave, perhaps towards the support at 1290 (S1). Both the oscillators favor the continuation of the retracement, since they both follow downward paths. Nonetheless, the overall short-term picture of the yellow metal remains to the upside, since the price is trading above both the moving averages and the key barrier of 1270 (S2). On the daily chart, the precious metal, found resistance at the 200-day moving average, before moving lower, thus it will have to overcome that obstacle before extending the uptrend.
• Support: 1290 (S1), 1270 (S2), 1250 (S3).
• Resistance: 1315 (R1), 1332 (R2), 1360 (R3)
Oil
• WTI remained where we left it yesterday, still consolidating near the 103.15 (R1) resistance barrier. As mentioned in previous comments, on the daily chart we have the completion of a possible double bottom formation, thus I would expect further bullish extensions. The picture of WTI remains positive as it is printing higher highs and higher lows above both the moving averages and the blue uptrend line. However I remain cautious for the forthcoming wave, since the RSI crossed below 70, confirming the pause in the momentum and favoring a pullback.
• Support: 101.35 (S1), 100.55 (S2), 98.80 (S3).
• Resistance: 103.15 (R1), 104.35 (R2), 108.15 (R3).
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Market Analysis 21/02/2014
Daily Commentary21.02.2014, Time of writing: 03:30 GMT
The Big Picture Risk appetite comes back The dollar shrugged off a disappointing Philadelphia Fed index yesterday as risk appetite came back regardless of the numbers. The USD rally began after disappointing PMIs from the Eurozone and the dollar wound up gaining across the board, aided somewhat by a better-than-expected Markit preliminary US manufacturing PMI. US stocks rallied and bond yields were up 2 bps Markets are continuing their risk-on mood this morning as stocks are higher across Asia. As a result, the exceptions to the higher US dollar were AUD and NZD, which gained along with the better risk appetite. Several of the beaten-down EM currencies also rose, such as BRL and ZAR, which is a good sign in that it shows the growing chaos in some EM countries, notably Venezuela and Ukraine, is not spreading contagion throughout the asset class. It was notable though that gold and the other precious metals gained as well even though there was clearly no flight-to-safety move. The risk-on sentiment means a higher USD/JPY in the first instance.
It appears that the G20 meeting of finance ministers and central bank governors that begins tomorrow in Sydney is not likely to come to any great decisions. Press reports say that the draft communique will concede that that accommodative monetary policies “will need to normalize in due course, in line with stronger growth,” meaning that the US (and eventually the UK) is not going to change course on tapering off its monthly bond purchases to accommodate the EM countries. All they will concede is that monetary policy should be “carefully calibrated and clearly communicated.” In assessing this conclusion, we should use what I call the “Gittler Inversion Rule,” which is: would anyone ever say the inverse of this? Can we imagine that the G20 would ever recommend that monetary policy be done haphazardly and communicated in a muddled fashion? If the inverse of a statement is not realistic, then the statement itself is basically meaningless. The DM reluctance to shade monetary policy to accommodate the wishes of the EM countries is inevitable. In the case of the Fed, for example, their legal mandate is to run monetary policy for the benefit of the US, not the rest of the world. Furthermore, they could argue that the EM countries objected to the introduction of quantitative easing and so can hardly complain when it ends. I expect as usual a communique filled with lowest-common-denominator bromides that have no lasting market impact.
During the European day, the UK retail sales excluding auto are forecast to have fallen 1.2% mom in January compared with +2.8% in December. This will drag the yoy rate down to +5.0% from +6.1% the previous month. Since consumer spending is one of the main engines of growth in the UK, this could hurt the pound.
Canada’s retail sales for December are forecast to have fallen 0.4%mom from a 0.6% rise in November, while the nation’s CPI for January is expected to have been up 1.3% yoy in January, an acceleration from +1.2% yoy in December. We saw CAD weaken sharply Wednesday after wholesale sales fell further than expected. A decline in retail sales in December could hurt the currency as well.
From the US, existing home sales for January are expected to have declined 3.9% mom after rising 1.0% mom in December. We’ve seen a number of disappointing housing-related indices recently though and they haven’t affected the dollar, as people assume that the slowdown in housing is due to the unusually cold winter. This decline too may not have much impact.
We have 2 Fed speakers on Friday’s schedule: St. Louis Fed president James Bullard and Dallas Fed President Richard Fisher.
The Market EUR/USD
• EUR/USD moved lower on Thursday after the worse-than-expected PMIs from the Euro area. The decline was stopped near the 1.3700 (S1) barrier and the 50-period moving average. I still expect another leg higher, perhaps a challenge at the 1.3810 (R2) resistance near the upper boundary of the upward sloping channel. The structure of higher highs and higher lows remains in progress and as long as the rate remains within the uptrend channel, I consider the short-term picture to be positive.
• Support: 1.3700 (S1), 1.3650 (S2), 1.3560 (S3).
• Resistance: 1.3770(R1), 1.3810 (R2), 1.3893 (R3).
USD/JPY
• USD/JPY rebounded from the lower boundary of the ascending triangle and is now heading towards the upper boundary at 102.70 (R1). A clear violation above that obstacle, which coincides with the 200-period moving average, may signal that the short-term decline has bottomed and it was only a retracement of the longer-term uptrend. The MACD crossed above both its trigger and zero lines, while the RSI is pointing up, confirming the recent bullish momentum of the price action.
• Support: 101.85 (S1), 101.40 (S2), 100.80 (S3)
• Resistance: 102.70 (R1), 103.45 (R2), 104.85 (R3).
EUR/GBP
• EUR/GBP is trading between the support of 0.8215 (S1) and the resistance at 0.8260 (R1). A decline in UK retail sales today may encourage the longs to break above the 0.8260 (R1) hurdle and challenge the validity of the longer-term downtrend line. Nonetheless, as long as that trend line is not broken, I would consider any short term advance as a corrective wave of the longer term downward path.
• Support: 0.8215 (S1), 0.8167 (S2), 0.8080 (S3).
• Resistance: 0.8260 (R1), 0.8335 (R2), 0.8390 (R3).
Gold
• Gold remained between the support of 1310 (S1) and the resistance of 1332 (R1). A clear violation of 1332 (R1) may signal the continuation of the upward path. On the other hand a break below the 1310 (S1) support may extend the corrective wave, perhaps towards the next hurdle at 1290 (S2). The RSI is pointing down. The MACD, although in a bullish territory, lies below its signal line, confirming the recent pause in the metal’s momentum. On the daily chart the precious metal found resistance at the 200-day moving average before moving lower, thus it will have to overcome that obstacle, which coincides with the 1332 (R1) barrier, before extending the uptrend.
• Support: 1310 (S1), 1290 (S2), 1270 (S3).
• Resistance: 1332 (R1), 1360 (R2), 1376 (R3)
Oil
• WTI continued its consolidative mode near the 103.15 (R1) resistance barrier. As mentioned in previous comments, on the daily chart we have the completion of a possible double bottom formation, thus I would expect further bullish extensions. The picture of WTI remains positive as it is printing higher highs and higher lows above both the moving averages and the blue uptrend line. However I remain cautious for the forthcoming wave, since the RSI crossed below 70, while the MACD crossed below its signal line, confirming the pause in the momentum and favoring a pullback.
• Support: 101.35 (S1), 100.55 (S2), 98.80 (S3).
• Resistance: 103.15 (R1), 104.35 (R2), 108.15 (R3).
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Market Analysis 24/02/2014
Daily Commentary 24.02.2014, Time of writing: 03:30 GMT
The Big Picture The G20 communique was much more receptive to the complaints of the EM countries than the draft that was circulating beforehand. It said that monetary policy in the developed countries “should normalise in due course” and talked about addressing deflationary as well as inflationary pressures. It also contained the language that was mentioned before the meeting about monetary policy being “carefully calibrated and clearly communicated.” Yet it added that the monetary authorities should be “mindful of impacts on the global economy” and that the countries would “continue to cooperate on managing spillovers to other countries.” These were apparently concessions to the EM countries that should win some friends in that at least it shows the developed countries acknowledge that their monetary policies have an impact on the EM countries. Whether it really does affect the conduct of monetary policy is another matter, however. The communique went on to say that the “primary response” of the G20 to policy transitions “is to further strengthen and refine our domestic macroeconomic, structural and financial policy frameworks. Exchange rate flexibility can also facilitate the adjustment of our economies.” In other words, it’s up to each individual country to get its house in order to deal with the changing world – this was the industrial nations’ stance before the meeting.
The dollar strengthened against most currencies last week, with its largest gains against SEK, CAD and NZD. CHF and EUR were the only G10 currencies to gain significantly against the dollar. EM currencies were mixed, with the dollar gaining ground against most – KRW, RUB and ZAR being the biggest losers – but BRL managing a significant increase after Brazil announced higher-than-forecast foreign investment and the government pledged to reduce spending. The CZK and LVL also gained somewhat.
This morning however the dollar is mostly lower. It gained against AUD and NZD as iron ore prices fell, but lost vs all the other G10 currencies. This may reflect the possibility, however remote, that the Fed slows its tapering off of its bond purchases in response to the impact on EM countries, as set out in the G20 communique. Personally I doubt if anyone really thinks that might happen, but at least the possibility is there. EUR gained against the dollar but was weaker on the crosses after ECB President Draghi repeated his willingness to act if deflation starts to take hold in Europe. The yen rallied as almost all Asian stock markets fell.
The main events on the agenda today are the German Ifo survey for February and Eurozone’s final CPI for January. The Ifo current assessment index is expected to be up to 112.8 from 112.4, while the expectations index is forecast lower at 108.0. Last month, both indices were higher than expected but the euro did not respond to the positive data. A similar reaction this time would indicate that the market’s attention is turned on Eurozone’s CPI data, coming out an hour later. That figure will set the stage for the ECB’s policy at its March 6th meeting. On Thursday we have Germany’s preliminary CPI for February, followed by the preliminary Eurozone CPI for February on Friday.
In US, the Chicago Fed national activity index for January and the Dallas Fed manufacturing survey for February are coming out. No forecast is available for either release.
One speaker is scheduled on Monday: former Federal Reserve Chairman Alan Greenspan speaks at a conference.
The Market EUR/USD
• EUR/USD moved higher on Friday, but still remains below the previous high of 1.3770 (R1). I still expect the upward wave to continue and challenge the 1.3810 (R2) resistance near the upper boundary of the upward sloping channel.
The structure of higher highs and higher lows remains in progress and as long as the rate remains within the uptrend channel, I consider the short-term picture to be positive. On the downside, only a break below the lower boundary of the channel and the 1.3700 (S1) barrier would be a reason to reconsider our analysis.
• Support: 1.3700 (S1), 1.3650 (S2), 1.3560 (S3).
• Resistance: 1.3770(R1), 1.3810 (R2), 1.3893 (R3).
EUR/JPY
• EUR/JPY rebounded at the neckline of the possible “inverted head and shoulders” formation, but failed to overcome the 141.25 resistance (R1). As mentioned in previous comments, a break above that resistance is needed to confirm the reversal formation and that the decline from back the 27th of December has bottomed. A violation of the 141.25 (R1) resistance may have larger bullish implications and trigger extensions towards the 144.35 (R3) barrier which coincides with the 161.8% Fibonacci extension level of the 29th Jan. - 4th Feb. bearish wave. However, the negative divergence between the MACD and the price action is worrisome and a dip below the 139.15 (S1) will probably signal that the aforementioned reversal formation was not as valid as we thought and turn the picture negative again.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3)
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
EUR/GBP
• EUR/GBP moved higher and currently consolidates near the 0.8260 (R1) and the 200-period moving average. Another upside leg may challenge the validity of the longer-term downtrend line. The MACD oscillator lies above both its zero and trigger lines, confirming the recent bullish momentum of the price action. Nonetheless, as long as the trend-line and the hurdle at 0.8335 (R2) are not broken, I would consider any further short-term advance as a corrective wave of the longer term downward path.
• Support: 0.8215 (S1), 0.8167 (S2), 0.8080 (S3).
• Resistance: 0.8260 (R1), 0.8335 (R2), 0.8390 (R3).
Gold
• Gold remained between the support of 1310 (S1) and the resistance of 1332 (R1). A clear violation of 1332 (R1) may signal the continuation of the upward path. On the other hand, a break below the 1310 (S1) support level may trigger a correcting wave, perhaps towards the next support at 1290 (S2). On the daily chart the precious metal found resistance at the 200-day moving average before moving lower, thus it will have to overcome that obstacle, which coincides with the 1332 (R1) barrier, before extending the uptrend.
• Support: 1310 (S1), 1290 (S2), 1270 (S3).
• Resistance: 1332 (R1), 1360 (R2), 1376 (R3)
Oil
• WTI consolidates below the 103.25 (R1) resistance barrier. A clear upward violation above that level may challenge the next hurdle at 104.35 (R2). Considering the completion of a double bottom formation on the daily chart, I would expect the upward path to continue. The picture of WTI remains positive as it is printing higher highs and higher lows above both the moving averages and the blue uptrend line.
• Support: 100.75 (S1), 98.85 (S2), 96.50 (S3).
• Resistance: 103.25 (R1), 104.35 (R2), 108.15 (R3).
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Market Analysis 25/02/2014
Daily Commentary25.02.2014, Time of writing: 03:30 GMT
The Big Picture Warmer weather coming? The story is getting familiar – US indicators disappoint and the dollar moves modestly lower. The key point perhaps was in equity markets, not FX markets. Equities shrugged off yesterday’s weakness in Asia and both European and US equities closed higher. This encouraged risk-taking sentiment and AUD and NZD were the big winners on the day, while the safe-haven JPY and CHF eased. EUR/USD remained within its recent range (see technical comments below) as the European news dampened expectations about further ECB easing next week. Although Eurozone CPI had the largest fall on record on a month-on-month basis in January, the year-on-year rate was revised higher, all three Ifo indices beat the market forecasts (and two of the three were higher) and Belgian business sentiment – a surprisingly reliable proxy for EU business as a whole – improved somewhat in February, thus diminishing the pressure for the ECB to ease further at its meeting next week.
The next signpost for the ECB is the February preliminary inflation data later this week. The market is forecasting a further slowdown in Eurozone inflation to +0.7% yoy from +0.8% yoy. That would be the fifth sub-1% print in a row, which could rekindle deflation fears and push EUR/USD lower. The deflation fears seem justified –yesterday’s data shows that non-energy industrial goods fell 3.9% mom in January. The main question for next week though is probably what the ECB’s economists will forecast for 2016. Even if the data show the EU edging further towards deflation now, if the economists forecast higher prices in the future, then the ECB is likely to wait a bit longer. After all, ECB President Draghi said the ECB would ease policy “when we have reason to think that our medium-term assessment for inflation is changing for the worse,” not when inflation was actually changing for the worse.
Natural gas had a wild day, with the March contract initially rising about 4% and then later collapsing around 15% after the US National Weather Service predicted warmer weather than previously forecast in the Midwest from March 6th. An end to the unusually cold weather could also signal an end to the depressed US economic statistics. If there has indeed been pent-up demand – if for example people have held off buying a house or a car or a new pair of shoes or something because the weather was too cold to go out – then we could expect to see a surge of economic activity in March/April and a turnaround in the economic statistics. That would probably help to support the dollar.
Today we have only second-tier data from Eurozone: the final data on Germany’s GDP for Q4 and French manufacturing confidence for February, which is forecast to remain unchanged at 100. Italy’s retail sales for December are forecast to show no change on a mom basis for a second consecutive month, while the country’s consumer confidence for February is expected to rise to 98.5 from 98.0 in January. None of these is likely to be particularly market-affecting.
In the UK, the BBA mortgage approvals for January are forecast to rise to 47150 from 46521 in December. That could help to support the pound.
From the US, the Federal Housing Finance Agency (FHFA) house price for December index is estimated to have accelerated to +0.3% mom from +0.1% mom, while the S&P/Case-Shiller home price index for the same month is forecast to have slowed to 13.40% yoy from 13.71% yoy. The Conference Board consumer confidence index for February is expected to have fallen to 80.0 from 80.7, reflecting the latest disappointing US economic data. The Richmond Fed manufacturing survey for the same month is expected to be down to 5 from 12 in January. Those figures could prove USD-negative as yet another in the string of disappointing US data.
We have two speakers scheduled during the day: Federal Reserve Governor Daniel Tarullo and New York Fed President William C. Dudley.
The Market EUR/USD
• EUR/USD failed to overcome the highs at 1.3770 (R1) and after hitting that bar once again moved lower to settle near the lower boundary of the uptrend channel. A break above that high is now needed to signal the continuation of the short-term uptrend. On the other hand, a clear dip below the 1.3700 (S1) support could signal the completion of a short-term double top and trigger further bearish extensions. I change my view to neutral, since the pair failed to break above the aforementioned high but remained within the channel and well supported by the 50-period moving average.
• Support: 1.3700 (S1), 1.3650 (S2), 1.3560 (S3).
• Resistance: 1.3770(R1), 1.3810 (R2), 1.3893 (R3).
EUR/JPY
• EUR/JPY moved in a consolidative mode, remaining below the key resistance of 141.25 (R1). A break above that resistance is needed to confirm the “inverted head and shoulders” reversal formation and that the decline that started from the 27th of December has bottomed. A violation of the 141.25 (R1) resistance may have larger bullish implications and pave the way towards the 144.35 (R3) barrier, which coincides with the 161.8% Fibonacci extension level of the 29th Jan. - 4th Feb. bearish wave. However, the negative divergence between the MACD and the price action is still worrisome and a dip below the 139.15 (S1) will probably signal that the aforementioned reversal formation was not as valid as we thought and turn the picture negative again.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3)
• Resistance: 141.25 (R1), 142.85 (R2), 144.35 (R3).
GBP/USD
• GBP/USD found support near the 1.6600 (S1) level, which coincides with the 38.2% Fibonacci retracement level of the 05th -17th Feb. rally, and moved slightly higher. However, the rate remains below the resistance of 1.6725 (R1). I consider the intraday bias neutral for now, since above 1.6725 may target once again the 1.6820 (R2) high, while a dip below the 38.2% retracement level may extend the corrective wave. On the daily chart, the longer-term uptrend has resumed after overcoming January’s highs.
• Support: 1.6600 (S1), 1.6520 (S2), 1.6465 (S3).
• Resistance: 1.6725 (R1), 1.6820 (R2), 1.6885 (R3).
Gold
• Gold managed to break above the 1332 level but returned lower to test it as a support this time. If the bulls are strong enough to maintain the price above that barrier, I would expect them to target the resistance at 1360 (R1). On the other hand, a break below it would bring the metal back within the 1310(S2) – 1332 (S1) range and turn the outlook neutral again. On the daily chart, the yellow metal is now trading above the 200-day moving average, shifting the odds for further advance.
• Support: 1332 (S1), 1310 (S2), 1290 (S3).
• Resistance: 1360 (R1), 1376 (R2), 1395 (R3)
Oil
• WTI touched the 103.25 (R1) resistance level once again and moved slightly lower. A clear upward violation above that level would signal the continuation of the short-term uptrend and may open the way towards the next hurdle at 104.35 (R2). Considering the completion of a double bottom formation on the daily chart, I would expect the upward path to continue. The picture of WTI remains positive as it is printing higher highs and higher lows above both the moving averages and the blue uptrend line.
• Support: 100.75 (S1), 98.85 (S2), 96.50 (S3).
• Resistance: 103.25 (R1), 104.35 (R2), 108.15 (R3).
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